BMO TOUTS GARP STRATEGIES

Growth at a reasonable price (GARP) strategies are expected to perform better than straight-up value investing as long as earnings growth remains differentiated on U.S. equity markets, says Brian Belski, chief investment strategist at BMO Capital Markets.

“This is particularly relevant in the current environment since earnings growth among U.S. stocks has become increasingly more disperse — a trend we expect to continue given the stage of the current cycle,” he said in a note to clients.

Mr. Belski recently compared the performance of stocks with below-market price/earnings multiples and above-market EPS growth to the S & P Pure Value index of stocks with the lowest price multiples.

He noted that GARP strategies produced an average annual total return of 21.6% in highly varied EPS periods versus a return of 17.7% for purevalue strategies and 11.6% for the S & P 500. At the same time, the average risk ratio — whereby the higher the ratio, the less volatile — for GARP strategies was 3.21 versus 2.54 for pure value and 2.45 for the S & P 500.